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Directors and officers insurance can protect your business’s key people from claims made against them. Directors and officers have responsibilities to employees, shareholders, investors, regulators, and even sometimes the public.
With all that on your shoulders, there is a significant risk of a claim being made against you. That is why directors and officers insurance can offer security and peace of mind for you and your key personnel.
What is directors and officers insurance?
Directors and officers insurance, or D&O insurance, is a product designed to cover compensation costs, insurable fines and investigation or legal fees if a claim is made against your business’ directors, key managers, partners, and officers.
This includes past, present and future leaders from your company and any subsidiaries. The ‘run off’ cover for past directors can last for up to six years in the UK.
The policy can also extend to company secretaries, in-house lawyers, lawful spouses, estates and liquidators.
The main point to understand about directors and officers insurance is that it protects specific individuals and their personal assets from a direct claim made against them, rather than the business as a whole.
What does directors and officers insurance cover?
Your directors and officers insurance policy would kick in if one of your business’s company leaders were accused of a ‘wrongful act’. These can include:
- breach of duty of care
- breach of trust
- negligent errors
- reporting errors
- misleading statements
- wrongful trading
- defamation
- health and safety failures
- insolvencies
- failure to comply with regulations or laws
- breach of European legislation
- mismanagement of pension schemes
- corporate manslaughter
» MORE: Liabilities of directors
What is not covered by D&O insurance?
Directors and officers insurance does not cover everything. For example, your policy won’t cover claims made against your business in general, but only specific individuals fitting the personnel requirements.
Some ‘wrongful acts’ do not fall under D&O insurance. These can include:
- fraud
- prior claims, investigations and other pre-known circumstances
- intentionally non-compliant acts or dishonest conduct
- willful violations of law and criminal behaviour
- illegal remuneration or personal profit
- property damage and bodily harm outside the scope of corporate manslaughter
- fines and penalties
- claims arising from public offerings of securities
It may be worth considering other types of business insurance alongside D&O insurance to ensure you are fully covered. Consider public liability insurance, employers’ liability insurance, and professional indemnity insurance.
Do I need directors and officers insurance?
Directors and officers insurance isn’t a legal requirement. But that doesn’t mean it isn’t an important consideration for your business.
An accusation doesn’t have to be true for it to cost money. Any legal action could cost thousands of pounds in legal costs. These are fees that could be covered by a solid directors and officers insurance policy.
And while you might not feel personally responsible, your seniority could still mean the buck stops with you. For example, while employers’ liability insurance would cover compensation if an employee is injured at work, you could get in further trouble if your company is found to have breached the Health and Safety at Work Act 1974.
You may also inadvertently get yourself into trouble. Let’s say you are quoted in an interview expressing concern about a supplier. If that supplier decides to sue you personally for defamation, directors and officers insurance could protect you from the costs.
Sole traders do not need directors and officers insurance. This is because you and your business are seen as the same entity.
» MORE: Do I need business insurance?
Why buy directors and officers insurance?
Directors and officers insurance can come to the rescue in many scenarios. For example, if you did not have a policy in place, and you or another of your directors or senior leaders are accused of a wrongful act, any legal fees and compensation costs will come from your own pocket.
With a good directors and officers insurance policy, you have peace of mind that you and other key managers are protected from the brunt of the financial burden created by a claim.
How much is directors and officers insurance?
As with all kinds of business insurance, the cost of directors and officers insurance will depend on several factors, causing it to vary greatly from organisation to organisation.
The following will likely play a part in determining your premium:
- what is the nature of your business
- your role in the organisation
- the size of your company
- the level of cover you choose to take out
» MORE: Business insurance costs
Directors and officers insurance – FAQs
Directors and officers insurance – FAQs
Directors and officers insurance can cover key managers, including directors, partners, and employees in positions of leadership or management, as defined by your specific policy. It won’t cover the actions of your employees below a certain level of seniority.
You may need to source other insurance to cover the actions of all your employees. For example, public liability insurance deals with claims for injury, death or property loss or damage to a third party on behalf of you and your employees.
» MORE: Public liability insurance?
Some insurers use management liability insurance as another term for directors and officers insurance.
However, other insurers treat it as a slightly different product, one that includes everything covered by directors and officers insurance, as well as a potential combination of corporate legal liability, employment practices liability and crime insurance.
Always check what exactly is covered by your insurer before you take out a policy.
No. Professional indemnity insurance relates to your business’s services, and accusations of negligence.
Directors and officers insurance, on the other hand, typically protects individuals from claims of mismanagement.
» MORE: Professional indemnity insurance
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